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Spain’s Budget focused on Spending Cuts
Written by: PaxForex analytics dept - Thursday, 24 January 2013 0 comments
Spain announced its 2013 budget which will go to parliament on Saturday for ratification. Unlike most of its idiotic socialist peers, Prime Minister Rajoy’s government focused on spending cuts rather than tax hikes. It appears that, at least momentarily, Spain’s leadership understands that spending needs to be trimmed in order to get budget back in order.
They also understand that revenue is short and that tax hikes decrease tax revenues which is why they try not to touch them. They should cut taxes at least at the same rate they cut spending to give the economy an additional boost. Spain is on the verge of a full bailout at the cost of surrendering their sovereignty and accepting unreasonable conditions which will keep Spain at the mercy of Germany which continues to claim that Spain does not require a bailout.
€100 Billion were earmarked for Spain in order to recapitalize their financial system. Rumors have it that Spain’s bank may not require €100 billion and that roughly half the amount would be spend directly on the economy which would give Spain a €50 Billion bailout it did not have to ask for in public and off the radar screens of nervous markets. Oh damn, we spoiled it like a few others have and by now everyone should be aware of the €50 Billion stealth bailout which may buy Spain until the end of the year.
Rajoy’s government aims to slash €13 billion from its 2013 budget which includes a 7.3% spending cut excluding social security as well as interest payments. Revenue is expected to rise 4% due to a 15% hike in the much hated value added tax. Wait, no. That tax increase will actually
decrease tax revenues a bit so forget that 4% rise in revenue.
Spain has 17 autonomous regions which are required to present their budget along with €5 Billion in cuts. Spain needs to walk a fine line as wealth powerhouse Catalonia in the northwest threatens secession should ridiculous austerity measures be forced onto Spain. Should Catalonia as well as the other autonomous regions deflect and secede Spain will have a serious issue at hand. This may finally get King Juan Carlos I to act and save his country and fellow countrymen by dissolving government and taking reign of Spain.
Madrid is in talks with the EU in order to agree on terms and conditions so it will invite the ECB and its bond buying program announced earlier this month in order to ease financial pressures. The idea will backfire and maybe the best thing for Spain is the secession threat in order to force the aging King to take action. In the meantime the government still weighs options on how to deal with the crisis and potential bailout conditions.
Spanish pensions will be reviewed as well. The government claimed t would not cut pensions as part of its budget cuts, but it already had to tap €3 Billion in social security reserves to pay out benefits. Pensions are supposed to increase 1% next year, but the government may opt not to adjust payments for inflation which will increase roughly 3% and will translate into a cut in pensions, an indirect cut.
Spain is facing dark clouds which are approaching fast and may threaten Europe’s fourth largest economy to the point of total collapse unless sophisticated actions is taken and an accelerated pace. The best solution and maybe the only one is for King Carlos I to become a fully instated monarch and lead Spain out of the crisis.